#10998 - Offer And Acceptance - Contracts

Offer and Acceptance

1. There is no legally binding agreement until an offer is made and then accepted.

2. The distinction between an offer and an invitation to engage in bargaining and negotiation is important.

A. Offers vs. Solicitations

One benefit of making solicitations non-binding is it persuades risk-averse parties to come together.

In general, courts resolve doubtful cases with presumption that the communication is an invitation to negotiate and not an offer.

Simply quoting prices does not constitute an offer (unless the quotation clearly indicates otherwise..level of detail, etc). This includes public advertisements.

No offer: Dyno Construction Company v. McWane, Inc. (1999) - Price quotes aren’t offers. Where the plaintiff and defendant negotiated iron pipe prices by phone but defendant insisted on plaintiff signing a contract before the pipe could be ordered and delivered, the contract was not formed until the paperwork was signed by the plaintiffs, and the price quotes that, prior to the signing, were exchanged between the two parties did not contain enough information (quantities, times of deliveries, etc) to constitute offers that could be accepted. It’s clear from the layout and the handwritten notes on the quotes that they were merely an invitation to an offer.

Note: As explained in a later section, courts are sometimes willing to fill in contract terms when it’s clear the parties intended to be legally bound, but this is not one of those cases.

Offer: Lefkowitz v. Great Minneapolis Surplus Store, Inc. (1957) – The store’s ad offered a $1 price and said “first come, first served.” This was considered an offer because its terms where clear, definite, and explicit. Whoever arrived at the store early enough to get a coat got a coat. Simply stating a price would not have constituted an offer, but stating a price and promising to serve the first person who arrived did. It set the terms of the agreement, and those terms were met.

B. Acceptance of an Offer

1. An acceptance is a voluntary act of the offeree whereby he exercises the power conferred on him by the offer, and thereby creates the set of legal relations called a contract.

2. The offeror is the creator of the contract and at the time of its creation he has full control over both its existence and its terms.

3. There are a number of ways acceptance can be manifested once an offer has been made. Since the offeror is the creator of the offer, she has the power to invite acceptance by any reasonable means or to limit acceptance to a particular or specified means.

4. The commencement of performance by the offeree is a valid form of acceptance.

5. Section 32 of the Restatement states that when the offeror does not state a specific method of acceptance, it is assumed that the offeree can accept by either promise or actual performance.

Offer cannot be withdrawn: Ever-Tite Roofing Corp. v. Green (1955) - Roofing contract accepted by performance -- Where a roofing company (P) and homeowner (D) signed a contract stipulating that the agreement was binding only upon written acceptance by the principal or authorized officer of the Contractor, or upon commencing performance of the work, the roofing company could accept the offer by packing its trucks and showing up to do the job. The court held the homeowner was liable for damages when Ever-Tite got to the worksite and found another company already undertaking the work. The court also noted that an offer that does not specify a time-limit must remain open for a reasonable time, and given the necessity of a credit check in this case, ten days was reasonable. If he wanted to revoke the offer, he should have let the P know.

6. Silence or Dominion as Acceptance – Only under special circumstances will silence or an act of dominion constitute acceptance of an offer. The practices of a specific business or industry, or the course of dealing between two parties over a period of time may include silence as an established method of acceptance.

7. Notice of Acceptance – To create a unilateral contract, the offeree can simply commence performance. In a bilateral contract, acceptance has to be communicated to the offeror.

8. The Mailbox Rule – Section 63 of the Restatement states that acceptance of an offer by mail takes effect as soon as the acceptance is mailed, whether or not it ever reaches the offeror.

C. Revocation of an Offer

1. An offeror is free to revoke his offer and terminate the offeree’s power to accept, providing that he acts before the offeree has recorded his acceptance (either through communication or performance).

2. However, offeror must let offeree know that the offer has been revoked in order to prevent any wasteful spending on the part of the offeree.

3. If an offer is made during a conversation, without an expression to the contrary, such an offer ends at the conclusion of the conversation.

4. However, if the offeror species that the offer will remain open for a certain period of time, the offer remains open for that time period unless it is explicitly revoked.

5. In the case of bargaining by mail, revocation of an offer does not become effective until the offeree actually receives the letter communicating the withdrawal.

6. It is possible to create offers that cannot be revoked for a specific period of time. Option contracts and certain firm offers and construction bids can operate as irrevocable offers. The most straightforward type of option contract is where one party pays another to make an offer by the latter irrevocable. Apparently, there needs to be some sort of consideration offered by the party to make it legit.

D. Counter-Offer

1. Section 39 of the Restatement defines a counteroffer as “an offer made by an offeree to the offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.”

2. Counteroffers serve as a rejection of the previous offer, rendering the offeree incapable of subsequently accepting the offer (unless the parties agree otherwise). See Section 38

3. Dataserv Equipment, Inc. v. Technology Finance Leasing Corp. –Computer equipment negotiations -- Where two parties are negotiating over an agreement regarding computer features and one responds to an offer by making a counteroffer, this constitutes a rejection of the offer, and the party cannot later accept the original offer without agreement by the offeror.

E. The Mirror Image Rule

1. An offer can only be accepted if the offeree agreed precisely and completely to the terms offered.

2. If the terms of the acceptance varies in any way from the terms of the offer, the acceptance is a counteroffer.

3. The counteroffer rejects and negates the terms of the original offer and becomes the offer with which the parties have to deal.

4. Negotiations continue until the terms proposed by each party are identical.

5. This rule exists to provide a sense of certainty to bargaining parties. Under this rule, they know that they will not be bound to a contract unless they have agreed to all of the terms.

F. The Last Shot Doctrine

1. This doctrine comes into play whenever one or both parties has performed even though the mirror image rule (full agreement on all terms) has not been satisfied.

2. According to the last shot doctrine, both parties are bound to the terms of the last offer (or counteroffer) given by one party to the other before commencement or performance.

Note: The other party has to be silent and actually accept performance for this doctrine to apply. If the other party rejects performance (say, but not accepting delivery), then I’m not sure what happens. I don’t think contract law would accept blatant opportunism. What if one party made an intentionally unbalanced offer, then quickly performed before the other party had time to reject it? This is all very COMMON LAW.

G. Definiteness

1. In determining whether there was a legally enforceable agreement, courts look not only to whether there appeared to be an offer followed by an acceptance, but also to whether the agreement was sufficiently definite or detailed.

2. The defendant may argue that the agreement is too indefinite—too lacking in detail regarding the parties’ alleged obligations to be legally enforced.

3. If there are lots of gaps in the contract, the question is how far the court will go in filling these gaps so as to create a sufficiently binding obligation upon which to base a remedy for breach.

4. Courts don’t want to accidentally misinterpret the intention of the parties.

5. Indefinite: Varney v. Ditmars (1916) - Defendant promised plaintiff that if he helped him complete some assignments, he would allow him to have a fair share of the profits on Jan 1, 1912. A conflict led to the plaintiff being fired, and the plaintiff sued for a fair share of the profits. The court held that this agreement was unenforceable due to a lack of definiteness. What constitutes a fair share of the profits could not be computed from anything that was said by the parties or by reference to any document, paper, or other transaction. There was also no external reference point that could give a general indication of what a fair share of the profits meant. The minds of the parties never met with regards to any particular share of the profits.

6. Common law presumed that the failure to reach a clear agreement on material terms implies an intention not to be legally bound. The court can fill in some contractual gaps (external reference points were still legit), but if the gaps are so large or so significant...